Question

The Kris Corporation had 20,000 windows on hand at the beginning of October. Each window had cost the company $50. The company purchased 40,000 windows during October at a cost of $50 each. The company's inspection of its purchases revealed 300 defective windows, which the company returned to its supplier for full credit of $50 each. The company sold 47,000 windows during October and charged its customers $90 per window. The company's October operating expenses were $900,000. The company's expected income tax expense was $400,000.

Determine the company's net income for October. Hint: FIFO and LIFO perpetual inventory methods will result in the same answer for this problem.

	a.	$1,880,000
	b.	$980,000
	c.	$580,000
	d.	$565,000

Answer 1

Income statement

Sales (47,000 x 90)			4,230,000
Cost of goods sold:
Beginning inventory (20,000 x 50)		1,000,000
Purchases (40,000 x 50)	2,000,000
Less: purchase returns (300 x 50)	- 15,000
Net purchases		1,985,000
Less: Ending inventory (12,700 x 50)		- 635,000
Cost of goods sold			- 2,350,000
Gross profit			1,880,000
Less: Operating expenses			- 900,000
Operating profit			980,000
Less: Income tax expense			- 400,000
Net income			580,000

Hence, correct option is (c)

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